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Click here to download a single PDF of all of the exhibits referred to in this article.

The future of accounting software may be in the cloud, but the
present remains in the server room—at least for now.

That’s one of the pictures painted by the results of a new section
of technology-related questions in the 2014 Management of an
Accounting Practice (MAP) Survey from the AICPA Private Companies
Practice Section (PCPS) and the Texas Society of CPAs (TSCPA). For the
first time, the biennial survey asked firms about specific software
choices and whether they access the software over the internet.

The new questions also explored firm policies regarding mobile and
social media use, document retention, and hardware and software
replacement. In addition, the survey inquired about the partners,
staff, and outsourced personnel responsible for leading and managing
the firms’ information technology (IT) efforts.

This article examines the firms’ responses to the new set of
technology questions and what those answers might mean for the
profession going forward.

Editor's note: Click here to download a single PDF of all of
the exhibits referred to in this article.

The software scene

When CPAs envision the near future, they see the cloud. In The
CPA of the Future, a study released in December by AICPA
subsidiary CPA.com, 90% of the CPAs surveyed agreed that the delivery
of digital business processes to clients will become a key
differentiator among accounting firms in the next five years. On the
other hand, the study, conducted by James Canton of the Institute for
Global Futures, also found that only 8% of CPAs believe the profession
is future-ready today.

That means that at least nine of every 10 CPAs understand that the
accounting profession needs to evolve quickly over the next few years
to adapt to a rapidly changing business environment, one that
emphasizes analytic and forward-looking services over increasingly
commoditized compliance and reporting work.

Part of that transition will involve the adoption and deployment of
cloud-based software. Vendors have clearly hopped on the cloud wagon,
with established players releasing software-as-a-service (SaaS)
versions of flagship products, as new, cloud-only competitors emerge.
It’s still relatively early in that process, however, as evidenced by
the MAP Survey, which found significantly more firms using software
located on their computers than those accessing purely SaaS offerings.

Part of the reason for this is the dominance of large vendors and
established software packages. QuickBooks, for example, emerged as the
clear leader in market share for write-up and bookkeeping software for
firms in all seven size categories tracked by the MAP Survey (see
Exhibit 1). Write-Up CS from Thomson Reuters was the only other
product to register double-digit usage rates among the nearly 1,750
firms surveyed, doing so for the middle five revenue tiers.

Asked to indicate the primary way they access their write-up and
bookkeeping software, more than 70% of firms replied that they use
applications installed on-premise. The percentage of firms primarily
using purely SaaS offerings, described as software accessed through a
website login, failed to top 9% in any of the revenue categories.

On-premise applications also lead the way in most other software
categories: tax preparation, time and billing, scheduling, and work
flow and document management (see Exhibits 2–5). SaaS applications are
still relatively small players except in work flow and document
management software, where XCM Solutions’ web-based work flow offering
has double-digit shares among firms with at least $5 million in annual revenue.

Look for other cloud-based software offerings to claim large chunks
of market share over the next five years. Firms already are
predominantly in the cloud for research software, both for tax and for
auditing and accounting. Thomson Reuters’ Checkpoint and Checkpoint
PPC products control the lion’s share of the research software market
(see Exhibits 6–7).

The digital divide

While virtually all firms of all sizes use tax preparation and
write-up/bookkeeping software, the usage rates for the other types of
software surveyed trended upward with firm size. More than half of
firms in the smallest three revenue categories did not employ
scheduling software, while the same held true for work flow/document
management software among firms in the smallest two tiers.

The who, what, why, and how of technology decisions also vary
according to firm size. More than half of firms with at least $1.5
million in revenue have a formal technology strategy that’s tied to
the firm’s overall strategic plan. The rates for firms in the four
other revenue tiers range from 31% for the smallest firms to 42% for
those in the $500,000 to $750,000 revenue bracket (see Exhibit 8).

While a firm owner or partner is almost always responsible for
information technology strategy and oversight, larger firms are much
more likely to have a senior manager, outsourced IT personnel, or
in-house IT staff involved (see Exhibit 9). Day-to-day management
usually falls to an owner or partner in firms with less than $750,000
in revenue, while the outsourced IT personnel play a leading role for
firms with $750,000 to $5 million in annual revenue (see Exhibit 10).
Most firms with at least $5 million in annual revenue have in-house IT
staff to handle day-to-day IT management.

Firms in the middle three revenue brackets were the most likely to
have outsourced IT help. More than half of firms in the $1.5
million-to-$5 million revenue range turned to outsourced consultants
to help develop IT strategy and/or direct day-to-day IT management.
The median paid for outsourced IT was nearly $17,000 a year, while
more than a quarter of firms spent more than $36,000. The prevalence
of outsourced IT plunged in the largest two revenue tiers as the
largest firms have more robust internal IT teams. When large firms do
outsource IT, they spend more than their smaller peers, with a quarter
of firms in the largest two tiers paying at least $45,000, sometimes
much more, for outsourced help.

Policies and practices

The approach to replacing or updating hardware varies by firm size.
Firms with less than $500,000 in revenue tend to wait until the
current hardware fails or their IT consultant tells them it’s time to
make a change (see Exhibit 11). IT consultants also hold a lot of sway
for firms with $500,000 to $5 million in revenue. The percentage of
firms operating on a schedule for hardware replacement increases with
firm size—rising from 19% among the smallest firms to 88% among the
largest firms. On the other hand, more than a fifth of the smallest
firms indicate financial ability is the key factor in whether they
replace or update hardware.

On the software side, between 33% and 42% of firms across the size
spectrum replace or update their applications when a better
alternative becomes available (see Exhibit 12). Among the other
options, smaller firms are more likely to replace/update software
annually or when it is no longer supported by the operating systems,
while the larger firms are more likely to have a proactive replacement
schedule, which helps to make costs more predictable.

Fewer than half of firms with revenues below $1.5 million employ
virtualization technology, which allows for the creation of multiple
servers and/or an operating environment within a single physical
server or desktop. More than 70% of firms above the $1.5 million
revenue mark use virtualization. For the largest firms, VMware for
Servers is the most popular choice, followed by Citrix XenApps,
Microsoft Hyper-V for Servers, and Microsoft Terminal Server, which
was the most popular choice among firms with between $500,000 and $5
million in annual revenue. In an interesting twist, Citrix was the top
choice for both the smallest firms and the large firms with between $5
million and $10 million in revenue (see Exhibit 13).

On the mobile front, the vast majority of firms allow their
employees to access work email via their tablets and smartphones, with
more than 80% of firms of all sizes promoting at least some use of
mobile technology (see Exhibit 14). More than half of firms with at
least $750,000 in revenue grant their employees’ mobile devices remote
access to the firm’s network.

More than half of firms with less than $1.5 million in annual
revenue do not actively use or promote the use of social media (see
Exhibit 15). Of those firms, sole proprietors and others in the
smallest tier are more likely to use social media for business
development and client communications than many of their larger
competitors. Firms with at least $5 million in revenue post the
highest social media usage rates, with business development and staff
recruitment as their most popular activities, though 15% of the
largest firms say they are not active on social media.

In contrast, a vast majority of firms, and virtually all the large
ones, claim to operate in a paperless work environment (see Exhibit
16). The most popular technique among firms of all sizes is to scan
and archive digital files as the final record of completed
engagements. Large percentages of firms also deliver organizers and
tax returns digitally. Among other paperless practices, large firms
are much more likely to provide mobile monitors to staff, use document
management or tax work flow software, scan documents at the beginning
of an engagement, and use a client portal. Regardless of how documents
are stored, the most common policy for their retention calls for files
to be purged after seven years. More concerning is that at least 10%
of firms in each revenue category, and a third of the smallest firms,
indicate that they either don’t have a document-retention policy or
that they don’t follow one—a course of inaction that can have a number
of privacy law and compliance implications.

Conclusion

CPA firms are much farther along on the path to paperless than on
the journey to the cloud, but look for that gap to close in the coming
years. As noted in The CPA of the Future report, CPAs
understand that the digital future is coming fast and that they need
to get ready. Much of that preparation will take place in the cloud.

Editor's note: Click
here to download a single PDF of all of the exhibits referred to
in this article.

Jeff Drew is a JofA senior editor. To comment on this article or to
suggest an idea for another article, contact him at jdrew@aicpa.org or 919-402-4056.

The Private Companies Practice Section (PCPS) is a voluntary firm
membership section for CPAs that provides member firms with targeted
practice management tools and resources, including the Succession
Planning Resource Center, as well as a strong, collective voice within
the CPA profession. Visit the PCPS Firm Practice Center at aicpa.org/PCPS. The
Succession Planning Resource Center is available at aicpa.org/PCPS/succession.

The Information Management and Technology Assurance (IMTA) division
serves members of the IMTA Membership Section, CPAs who hold the
Certified Information Technology Professional (CITP) credential, other
AICPA members, and accounting professionals who want to maximize
information technology to provide information management and/or
technology assurance services to meet their clients’ or organization’s
operational, compliance, and assurance needs. To learn about the IMTA
division, visit aicpa.org/IMTA. Information about the CITP
credential is available at aicpa.org/CITP.